tv Bloomberg Markets European Close Bloomberg January 15, 2018 11:00am-12:00pm EST
markets. ♪ mark: right here, the top stores where covering around the world. flush withuctions, government contracts goes belly up. how many spillover effects are there? what will it take to get a bear market going in bonds? janet henderson says the chances of a bear market on looking too likely. hitting the road to detroit for the annual auto show, inside the books with bayerische motoren werke ag. have a look at what is happening with european equities. 30 minutes away from the end of the session.
no trading in the u.s. because of the martin luther king holiday. global stocks, another record today, up by 24%. multiyearcy market, highs for the euro, the pound, highest level since june 23, 2016. it has risen for four straight weeks. cpi data, big brexit events. the eu withdrawal bill returns for debate in the lower chamber of the house of commons tuesday, wednesday, the euro-pound, little changed. it has been stuck in a range of 87 to 90 since september. check out the bond market. yields tipping for the u.k. 10-year, down by a couple basis points. a two month high on friday. 40 basis points since falling to
an eight-month low since june, 2017. yields in germany rising up 59 basis points. from 29 basis points in the last month, economic data to watch out for this week, cgi data. on wednesday, expected to confirm inflation is remaining below the ecb's goal. let's get to oil, remaining at the highest level in three years. iraq echoing the call by the uae and other producers or opec, letting cuts continue despite recent gains. crude, below $70 a barrel. let's check on first world news. the feud between persian gulf monarchies has escalated. jetsae says qatar fighter intercepted commercial flights.
the uae is part of a saudi-led and qatar denies allegations that it supports terrorism. reporterstrump told he is the least racist person. this after vulgar comments about a.d. and african countries. he denies those remarks. 40 were injured on a casino shuttle boat that caught fire. it forced passengers and crew to jump into cold waters. investigators are trying to figure out the cause. one of the biggest diamonds in history has been discovered in southern africa. it is 910 carats. it was found in a diamond mine. and 800 and 13 caret diamond found in 2015 sold for a record
amount of money. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i'm emma chandra, this is bloomberg. mark: the once mighty u.k. construction giant carillion has collapsed. it had government contracts from hospitals to high-speed rail, failing to get a government bailout. carillion has $2 billion of debt. the share price has collapsed in the last year. it is so nice to play the blame game but let's play it. who is to blame? >> the blame game is happening. both sides deserving the blame. the government for presiding fragmented contracting market where price, the bottom line is everything. not enough attention is paid to this supply chain. the other side will be carillion itself, to aggressively bidding for contracts with the
incentives for the board, all about excessive growth. mark: should the government have awarded further contracts in the wake of the year where we saw three profit warnings and the share price plunged. what message does that send? >> it is a concerning one, it suggests maybe they do not know the full picture of the health of carillion or did know and are just hoping to put in the right contingency plan to avoid getting any embarrassing situations. if the government doesn't know the full health of one of the biggest contracts. approach,nding the the only approach was to carry on. lionel: politics. if you show weakness, maybe your opponents will seize on it and dangerous is a financial problem at the heart of u.k. industry and the government is trying to cover it
up. mark: should the government have failed it out or not? it is tricky. i think the problem here is how private is this company? it is not purely private sector, it is doing government work. it probably shouldn't have been bailed out but it is still embarrassing for the government and still needs urgent addressing of the reform of the market. mark: how do you fix it? the procurement industry? lionel: the companies involved have to be bigger and stronger and more profitable. maybe more m&a, more consolidation. the government has to look at the market. does it know what it is doing when it is pulling out tenders and deciding who to pick? price or the best offer and chance of delivery for the taxpayer? mark: the chance of delivery is everything. will this be orderly?
who is to say it will or won't be? lionel: we are starting to see financial hits. some of the other contractors are agreeing to stump up the money to deliver the contracts. the whole supply chain will be affected. we will see rivals trying to pick up business and profit from the collapse. it should be straightforward mark: jeremy corbyn questioning this policy. does he have a point? lionel: i don't know. i think this is about running things well. i don't think it is about saying there is problem with private enterprise and it should all be done in-house. you can have a private-public model where you make sure everything goes well and the sensors are in line to get it delivered as opposed to trying to award the contract to the lowest. mark: was carillion a one-off? are there other companies that,
as you say, the prices low, long-term it is not viable. who else is playing this risky game? lionel: the market as a whole has relatively weak margins next to other markets. there are too many players. even with awards to carillion, joint ventures, other companies, reliance on foreign's companies -- foreign companies. the whole market needs to be looked at. services business association warned only one of the five largest public service providers made a commercial return in five years. that says it all? price, leading to long-term costs. wasel: the report, which called paperclips, hinting, you cannot price every market. mark: my hand is getting in the way. i'm spoiling the vibe.
mark: breaking news, the ecb could and qe after september. adjusting policy guidance before the summer, so says the councilmembers. the ecb shouldn't have any problems ending. due to go on are at least until the end of september after they were cut to 30 billion euros per month. he judged the ecb current stance is roughly appropriate. he was speaking in an interview with a german newspaper. he said there was a need for action in communication. there is the german ten-year yield, up 59 basis points.
the euro at highest against the dollar since the end of 2014. it has been an interesting couple of weeks. it is the hawks within the ecb who seem to be the most vocal. the german central bank governor. comments come after the account of governing, show policymakers, tweaking guidance to align with spurringgth economy, the rise in the euro at the end of last week. betting the bond buying will end in september, this certainly adds to that discussion. a new chapter in the ongoing feud between qatar and its neighbors. jetsae says qatar fighter intercepted commercial planes that were headed to bahrain. qatar denies but qatari stocks fell. joining us now is the managing editor for africa and the middle
east. the fact that qatar is disputing what the uae is saying, what do we know is the truth or the half-truth here? >> great question. who knows? itsou say, qatar is denying fighter jets intercepted the planes. the uae is standing by its assertion. we had a selloff in stocks today. the biggest since this kicked off last summer when saudi arabia, egypt and uae severed ties with qatar. i'm not sure it matters, whether it is true or not. hadhe sense that, we have relative calm in this conflict and suddenly it is kicking off in pretty bizarre ways. when the rhetoric heats up, the possibility for something going wrong, gets that much higher.
that is why we saw such an abrupt selloff. the capital between of bahrain and the capital of qatar is 80 miles. less than the length of long island to put it in perspective. when you have commercial airliners and jets and threats thing thrown around, it certainly gives the region and investors something to worry about and that is what we saw today. mark: is military confrontation in the region, entirely inconceivable? >> no. isive here in dubaim which quite calm. wars rage all over the place. syria, yemen. it is certainly not inconceivable. you asked me whether the gcc
could go there. it would seem unlikely. the u.s. has bases here and both sides will be extremely careful about doing something that would tip the region. i don't think it is what either side wants. there are no formal talks taking place to end the crisis. no informal talks that we are hearing of. heard of some recently. this is a sign in the wrong direction. when tensions rise, mistakes can happen. we will have to look and see in the coming days if moves are made to de-escalate this. tok: the same could apply what is happening in turkey and syria. the turkish president accusing washington of establishing an army of terror along the turkish border. are we looking at another face-off between the president of turkey and the u.s.
exacerbating the already considerable strains that are testing that relationship? >> that relationship has been strained in many ways, politically, economically and now what we are seeing in syria is we are moving to a new phase in the conflict, for all intents and purposes, the islamic state has been defeated. there are still pockets of it. there is a mad rush o now as people seek to capitalize as the war winds down. assad's troops are trying to make inroads. the kurdish rebel fighters who were among the most effective and backed by the u.s. are doing similar. is looking president at that. he considers them affiliates of turkish groups in turkey considered to be terrorist
groups. we seen turkey go into syria before. these are not idle threats. this is a new phase. at his worderdogan there will be imminent action in syria by turkish forces. mark: andrew, thanks for joining us. news on carillion, which we have talked about today. the government spokesman, james black has been speaking to reporters. there have been questions asked about what the government knew when it awarded a various deals after warnings. the uk's signed eight deals after the july warning. carillion management shouldn't benefit from the failure, black says. interesting developments on this carillion story.
♪ mark live from london, i'm barton with "the european close" . acceptance into the basket of currencies, the march of the yuan has slowed down. it is dropped to the sixth most used worldwide. bloomberg, stephen engle, about the yuan's standing. >> we had different balance sheets. i can only talk for our balance sheet. the middle of last year, we made the decision in the bundesbank, talk about i cannot
the amount we will be investing and i cannot talk to about the technicalities, how we will be investing but we have been in touch with our colleagues from the people's bank of china maybe half a year ago about this. the ecb goes first, the right way to do it. other central banks have moved before the ecb, that is also fine. we thought that this would be also right, to be proud of the german currency reserves. amount, but itor is something we decided on and we want to be part of so the fact that, that is included in the sdr basket, and the fact that european central bank has factors.o, were both inclusion your probably have similar concerns the currency is not a
free-floating currency. it has restrictions. there are capital controls in germany. do you share these concerns? >> yes we do. nevertheless, we may have to say part of our money to the imf, we need accounts, we need to be able to fulfill our obligations as the fourth-largest member of the international monetary fund. we are now, have made that decision. this is not as big news as you may think. it is a fact we have decided to go forward. >> sometimes a journalist has to ask the obvious question. why? it is nowid before, part of the sdr. we have to fulfill our quota. because of the ecb also investing in central banks in the eurozone. >> does it represent the growing
financial clout that china has and the need for trade financing and the avenues that you want to have this currency in? >> as a central bank you have a currency, in your reserves, to the extent you need it. neededot necessarily we in order to fulfill our obligations as a central bank. but also a matter of fact, we want to have the accounts in this currency, we want to understand the markets of government bonds etc. we share the concerns, the imf has. yesses.nswer is two >> you said you had these negotiations for the last six months. is there a clear indication that china is literal is in "bloomberg markets: the european close" -- >> it is their decision.
it depends how quickly they want to do this. it was much more used than it was before. there are obstacles. sometimes interventions. predictable what regular changes you have. in order to make it more used, more needs to be done. it does not have an anchor currency status. obstacle wouldst be these restrictions on trading and the capital controls? >> the international use is increasing. the trade links with china will intensify. foreign ownership has been liberalized in china. you can own up to 51% of a
financial institution. moref this will make a internationally used currency. >> is is a plan being put forward or starting as of now? the bundesbank will start accumulating? won't talk about time or amounts to we have made that decision and we will execute our plans in the way we think fit and closely coordinated with the people's bank of china. mark: on the sidelines of the asian financial form in hong kong. the close is next. this is bloomberg. ♪
mansion house. the close is next. i'm mark barton. stocks finishing up the day in european trading. nine seconds until the end of the session. is closed in the u.s. because of the martin luther king day holiday. the perfect opportunity, as expressed, to check out the gmm function. global macro movers. it is a wonderful function. split into asset classes, vertically, equities, currencies, bonds. down for the second day in three after rising for a second week, the best run since november 3. 4% stoxx 600 is roughly below the record set in august, 2015. i will talk about the euro in a
second. the third column, bonds, mixed day, down in yields. yields up elsewhere. the focus on the ecb. adding hawkish sentiment from the ecb this year, leading to speculation the ecb will and bond purchasing programs in september. the final column, i want to talk about the euro. going from strength to strength, rising for the fourth day, biggest weekly jump last week since september. week with thelast prospects of a new german government. open to tweaking, policy guidance. the dollar and crude oil? will it passed $70 just for us? we closed above $70 on friday.
69.99, oil trading the highest in three years. iraq echoing for opec cuts to continue despite recent price gains. at $70, could be fresh stimulus to shale drillers, so says the international energy agency. 69.99.is at $ hea: president trump says doesn't believe democrats want to make a deal on the young documented immigrants facing deportation. the bill that is needed to reverse a government shutdown, and exchange the president wants money to build a wall on the mexican border. in hawaii, stated and a federal officials are investigating a false alarm.
hawaiian residents were sent into a panic when a mobile alert sent that a ballistic missile was inbound and people should take shelter. pushed the wrong button. a walkway in the indonesian stock market holding collapsed. this was after the afternoon trading session. china is stepping up crackdowns on cryptocurrency trading's. according to people familiar, the government is targeting online platforms and mobile apps that offer exchanges for services. bitcoin and other digital currencies over the past few months. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. mark: thank you. over the last week there has been a shakeup in the local bond
market -- the global bond market. it is left most investors being nonbelievers in a bear market. >> this will be a jacket. period. >> it is not much about china selling treasuries, much more about inflation in the u.s. the risk that keeps most participants awake at night. >> for the treasury market, it is more important, what the actions are coming out of europe and japan. >> you have the fed unwinding the balance sheet, the ecb slowing purchases. the boj this week, making changes, if we extrapolate, slower purchases. up theed to take a thumb scale and it is poised to stop manipulating the most important price in the world, the ten-year treasury. that is a meaningful change. >> $14 trillion worth of bonds bought by central banks in the past five years. that appears to be close to an end. >> the bond market is not dead,
it is dealing in a bearish trend that a lot of people have not seen before. they have to learn how to do it. >> we have put in a structural yield, to say that we are in a bond bear market is premature. mark: let's bring in jim. >> i think it is a bear market for yields. i look back at the summer of '16 . the in aggregate across bond markets was less than .5%. astonishing. we are 1.2% today. we have been in an uneven escalation of yields for some time. the classic bear market is defined by returns. despite that rise in yields, we have had positive returns in high-quality bonds in 2016 and 2017. it is hard to think we are in a bear market. mark: are you disagreeing with
your colleagues? >> no. seeing, inat you are a low volatility world definitions are important. which is bear market, what bill gross was referring to, tenure treasuries, 270. that is a fairly small increase. 3%, we are still -1%.ng returns of 0% to it is quite mild. that is the key. often the definition is getting in the way of are we in a bear market or not? mark: what do we need to really get a bear market going? none of this mild stuff. >> a true bear market, let's define it now, a yield rise of 100 basis points or more, what
you would need is one of three things. first of all, credit creation is the missing ingredient across this whole cycle. the credit mechanism where you get lending, just not happening. there is too much debt in the world and you have seen that depressed, the credit creation element. above and beyond that, you would look for a shakeup in the trend for inflation. ,ore inflation across the oecd percent sinceto 2011. the lack of volatility is astonishing. you get close to the top end, if you could break through and get a regime shift -- mark: you're not looking at a regime shift? >> it is hard right now. unless you get surprised by wage growth or some other element
like that, it is probably not oil that can do it on its own for example. you need a more fundamental shift. you continue to see pressures, whether you get the true bear market remains to be seen. the final thing that would truly alter the equation, central banks in the next downturn, if they changed the rules completely. fiscalter money, massive stimulus in a way we haven't seen yet but maybe further populism might change the rules. you probably need something of to get a true, sustainable bear market in my mind. until you get that, the growth, the inflation looks to trend higher. valuations are expensive. you should see normalization from rich valuation. we are not as rich as we were one year ago. if you look at rates, the term
premium, compensation from the yield curve, it is minimal. there's not much value in high-quality bonds. mark: is there an element of complacency out there? >> it is interesting. when i look back on the trump victory. everyone in the world including me thought yields would be moving to the 3% level. i still think that is possible. what is different today is, no one thinks yields move beyond 3%. that is now the lunatic fringe. changed, the sense that on bycular depressants niels whether globalization, lack of inflation,, those are here to stay. they will persist. people still feel like bond yields are low, they lack the catalyst to get a bear market. mark: what did you make of the
china story last week? or the nonstory? did it make you think? does it matter? >> i thought it was a nonstory. i was surprise they would say that. i think the real answer is they probably didn't say anything that specific. what i worry about, this kind of relates to the term premium i talked about, that relationship between short-term yields and long-term yields. inflation expectations, a key part of the term premium. the yield curve can flatten when addressingicymakers short-term rates and moving rate up. japan,ws from china and those asian flows, have been a very important determinant of term premium. easy money in china leads to lower rates globally.
likewise, as they take the foot off the accelerator a bit, those flows will persist. i don't see them moving away from treasuries. the overall level of flows from china and japan, as well as the rest of asia, could be lower in the coming year. that should put upward pressure on longer dated yields. that coupled with higher inflation expectations might also help. the final thing on term premium, that is really, now that short-term rates have adjusted in the u.s. to the expectation of tightening, to get a real bear market you will need 10 and 30 year yields to move higher. to do that, you might look for volatility as a key signal. volatility, as expressed in the bond markets, comes through in a lower term premium. if you go further and further out the curve, that lower
volatility tends to show up in very depressed term premium. volatility is low almost everywhere we look. with central banks on the move, a lot ofgy prices, different facets of inflation whether sustainable or not, certainly are peaking interest. i would expect long-term rates to go up because higher vol should reduce the term premium. the number of elements even with the fed moving, the mitel you the yield curve flattening, step one, might give way to a step two. mark: jim, stay there. back in a second. an update on the construction firm, carillion, which has collapsed. spoke a fewstone moments ago in parliament. he says it is not right for the
♪ live from london, i'm mark barton, this is the "the european close". show thatf economists growth has risen. the sentiment and suggested there could be a revision of stimulus policy. for more let's continue the conversation with jim, global head of fixed income at henderson global investors. we discovered a few minutes ago, the ecb should i just guidance before -- should adjust
guidance. the noise from the ecb is of a more hawkish nature. september is done or is that jumping the gun? famous forbanks are being data dependent. the global economy is andhronized and doing well unemployment in areas like germany are record low. i could see why the eurozone would have the confidence to say the policies should be at least, if not eliminated, mitigated. my guess is they will. they view it as a special situation, not sustainable given the disruption on bond markets. central bankers want markets that are as important as government bonds to function normally.
i don't think it is good for markets to be this distorted. i think they will see the economy doing well enough to give guidance to the whole tapering by september. if the euro keeps rallying -- mark: above 30? jim: i think it could. we saw the chart earlier. it only takes you back to levels you are seeing a couple years ago. tradek that will impact in up so if you saw the credit creation side, the credit impulse maybe not doing enough to give policymakers worry. if inflation doesn't pick up in the eurozone, it will be difficult to taper. i would look for them to be data dependent. we will see. i suspect the euro zone is in good shape so that they will be able to wind it down in september. assets, theysk
will do ok. there is little compensation, for the risk of everything going wrong? jim: that is certainly true in fixed income. we spent time coming up with central cases but also risk cases. in the central case, what you see is good growth, the macro backed up is supportive. the tax cut in the u.s. gives an impetus to cash flow for corporations. you look at that and say, it is too early to expect a sharp rise in defaults. they are lower this year than they were last year. that is not the necessary ingredients for a bear market in credit. that said, spreads are tight, true everywhere. you don't get the compensation for being wrong. i would watch real yields. going back to the valuation argument, very low if not negative in most markets, that
has a dual effect on things like corporate bonds. default risk is low when real yields are low. normallyorrow cheap, at rates less than what your company may be growing. but also, real yields perpetuate that search for yields. that is what makes clients search out the higher-yielding instruments. you get low defaults, the greater interest in that search for yield. then you get the turbocharger of the ecb, buying corporate debt, all of those ingredients at once. mark: we have to go but great to see you. thank you for coming in. coming up, growth. bmw announcing growth. this is bloomberg. ♪
inspoke to nicolas peter detroit. nicolas: bmw is a pioneer in electric mobility. ince we launched the i3 2013, we have launched many electric cars in the global market. cars.han 300,000 the number one position in the premium segment for electric powered cars. optimistic for the years to come. by 2019, we will have sold a total of 500,000 electric cars. ofwith that, the percentage the overall fleet that is electric is low, 5%. when will that become a tipping point? byolas: we believe that
of5, we might be in the area 25% share in electric powered cars. thanks to our flexible production system, we will be ready to deal with deviations, up or down. >> what is that likely to do to the supply chain with respect to commodities, lithium, cobalt? it is not just bmw. will that put pressure on the production of commodities? nicolas: this is an important topic. technology requires those materials and we are investigating very closely how chain in the logistic those areas. >> the other big subject in detroit, is autonomous vehicles.
where is bmw on the autonomous development? nicolas: we're a strong partnership with strong partners like intel. our plan is to launch by 2021 with a bmw, and electric powered car and capable to deal with level three autonomous driving functionality. >> what is the pace of the update on autonomous vehicles? will a child born this year have to know how to drive in 2034 when they turn 16? nicolas: thinking about bmw, i think they will want to drive and they will wish to have a driverless capability. we will still build a
sighting, and dynamic car. >> on trade, nafta is a big topic in the united states. you have announced a plant in south carolina, you have one in mexico. what are you modeling? how could this affect bmw? nicolas: if you take our project will move by 2019, we regardingl market, spartanburg, we call the u.s. market our second home. billionvested nearly $9 since we started the production in south carolina. we continue to invest heavily in there.duction site
years,n for the next two $200 million in training programs, which puts spartanburg in the number one position of all our plans on a global scale. we are very proud. to be responsible for having generated these jobs in the u.s. the u.s. market is definitely one of the most important markets for our group. from theolas peter automotive show in detroit. former u.k. secretary tomorrow. this is bloomberg. ♪
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